Jubilant FoodWorks Limited (JUBLFOOD) Q1 FY23 Earnings Concall Transcript

Jubilant FoodWorks Limited (NSE:JUBLFOOD) Q1 FY23 Earnings Concall dated Jul. 28, 2022

Corporate Participants:

Deepak Jajodia — Vice President

Hari Shanker Bhartia — Founder & Co-Chairman

Ashish Goenka — Executive Vice President & Chief Financial Officer

Analysts:

Vivek Maheshwari — Jefferies — Analyst

Tejash Shah — Spark Capital — Analyst

Abneesh Roy — Edelweiss Financial Services — Analyst

Percy Panthaki — IIFL — Analyst

Chirag — CLSA — Analyst

Jaykumar Doshi — Kotak — Analyst

Vishal Gutka — PhillipCapital — Analyst

Latika Chopra — JP Morgan — Analyst

Sheila Rathi — Morgan Stanley — Analyst

Avi Mehta — Macquarie — Analyst

Devanshu Bansal — Emkay Global — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Jubilant FoodWorks Limited Q1 FY ’23 Earnings Conference Call. [Operator Instructions]

I now hand the conference over to Mr. Deepak Jajodia. Thank you, and over to you, sir.

Deepak Jajodia — Vice President

Thanks. Good evening, everyone. Welcome to Jubilant FoodWorks Q1 FY ’23 Earnings Call for investors and analysts. We are joined today by senior members of the management team, including our Chairman, Mr. Shyam Bhartia; our Co-Chairman, Mr. Hari Bhartia, our Chief Financial Officer, Mr. Ashish Goenka; and our Group Chief Financial Officer, Mr. Arun Chakan. We will commence with key thoughts from Mr. Hari Bhatia. Mr. Ashish Goenka will follow him with his perspective on the JFL’s progress on the quarter ending June 30, 2022.

After the opening remarks from the management, the forum will be open for questions and answers. A cautionary note, some of the statements made on today’s forum could be forward-looking in nature, and the actual results could vary from the statements. A detailed statement in this regarding this is available in Jubilant Food Works results release and other presentations.

I would now like to invite Mr. Hari Bhartia for sharing his views with you. Thank you, and over to you, sir.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you, Deepak, and good evening, everyone. Welcome to our earnings call. I’m very pleased with our start of the year, the strength of our omnichannel model, network expansion, and disciplined cost management has helped us in delivering strong results. Since the onset of the pandemic, this was the first quarter where our stores operated without restrictions. The delivery channel registered robust growth on a strong base of last year. The marked resurgence in retail footfall also helped us deliver strong sequential growth in the dine-in channel.

We opened 52 new stores for Domino’s India and entered 12 new cities, thereby enhancing our reach to 349 cities. This is the highest store opening in the first quarter of any fiscal year. It has also set us strongly on the path to open around 250 Domino’s stores during the year. As you are aware, global food prices reached a historical high in March, along with the spike in crude oil and other commodity prices. This affected our domestic market prices as well. Thanks to our constant focus on driving cost efficiencies and introducing relevant product innovations even during instances of record inflation, we are able to deliver profitable growth while maintaining our value for money portion.

Notably, the everyday value proposition pricing has remained the same since its launch in the financial year ’18. This in turn gives us the required headroom to take calibrated price increases in situations like this. As the last resort, it’s important to underline that despite calibrated price increases, we remain the most affordable pizza brand in the country. During the quarter, we launched our loyalty program, Domino’s GC rewards, and addressed the key white space in our offering.

We have come up with a very simple milestone-based construct, which owns the customer a free pizza after every sixth eligible order. All customers can earn points towards free pizza no matter how they choose to order, whether it’s online or offline, whether they order on our assets or via other online platforms. The redemption will, however, be on our assets. We believe our loyalty program will become a significant driver of growth, new customer acquisition, and retention for us by growing customer lifetime value.

Turning to our international operations in Sri Lanka, the political and macroeconomic environment remains [Technical Issues]. Thanks to the resilience shown by our team members, our operations were uninterrupted, and we delivered a strong quarter. We also opened one new store each in Sri Lanka and Bangladesh. In both markets, the online ordering contribution to delivery sales has been growing steadily. In conclusion, a series of strategic interventions we have made in the past and during the pandemic has left us better positioned than ever to capture profitable growth, increasing our confidence in the future while we navigate the short-term challenges.

With that, let me turn it over to Ashish to share a detailed overview of the quarter.

Ashish Goenka — Executive Vice President & Chief Financial Officer

Thank you, Mr. Bhartia, and good evening, everyone. Thank you for joining the call today. Our first quarter results marked a great start to the new fiscal year. The revenue for operations of INR2,403 million increased 41.1% versus the prior year and a 7.1% sequential growth over the preceding quarter. The increase in revenue was driven by like-for-like growth of 28.3%. In Domino’s, all three channels performed well, delivery channel, which had a strong base last year registered robust growth.

Dine-in owing to operational restrictions last year due to second wave of COVID, it’s not a compatible base. However, we not only registered a strong year-on-year growth, but also a strong order less sequential growth as compared to the previous quarter. Both dine-in and takeaway combined registered a robust growth. We delivered EBITDA of INR3,045 million, an increase of 44% versus the prior year. Despite significant cost headwinds, the EBITDA margin at 24.6% expanded by 49 basis points year-on-year.

Profit after tax and before exceptional items of INR1,223 million increased by 90.25%. That margin before exceptional items was 10.3%. Considering the significant changes in economic environment of Sri Lanka, we have taken an impairment charge of INR266 million in the quarter. Consequently, profit after tax is $1010 million, it grew by 61.4% and that margined at 8.1%, increased by 102 basis points. We continue to grow our network with 62 new store additions in India.

We added 58 new Domino’s stores and entered 12 new cities during the quarter. With this, we now have 1,625 Domino’s stores across 349 cities. We also added two new stores each for Popeye’s and Hong’s Kitchen. We are also continuously thinking about ways to introduce customer-centric innovations and means to deliver more value to a larger set of customers. We made two such interventions during the quarter. Firstly, as mentioned by Mr. Bhartia, we launched our loyalty program, Domino’s Cheesy rewards. We launched this after extensive testing, and we tested two models at scale.

The winning model is a simple milestone-based mode, wherein the customer gets the pizza after every six eligible orders, our endeavor to further enhance value cautions and reward the loyalty of our customers will not only help drive frequency but also attract new customers and retain them. Secondly, we also stepped up menu localization by bringing a super exciting fusion of paratha and pizza, crafted for discerning Indian taste. We are overwhelmed by the response that was received from consumers. The Paratha Pizza has value offerings as is the product platform like how we have established Pizza Mania or [Indecipherable].

We continued our strong momentum in growing our installed base. The app installs for the quarter was at 8.2 million. We continued to be the highest-rated app on both iOS and Playstore, thanks to series of enhancements being done by our digital team to make the customer experience seamless and intuitive. We opened two new stores each in Hong’s Kitchen and Popeyes. As shared with you in the previous call, in Hong’s Kitchen, we are now building greater awareness with ATL camping. Customer satisfaction scores are improving consistently. In Popeyes, we are seeing healthy repeat rates across stores and high ratings on both dine-in and deliveries even.

We remain on track to open 20 to 30 stores in the year. Let me now share key updates from our international business. Sri Lanka, as you know, is witnessing an economic and political crisis. We continue to navigate our business well in the wake of unprecedented challenges. We delivered system sales growth of 83%. The OLO contribution to delivery sales jumped from 51% a year back to 66% during the quarter. In Bangladesh, system sales grew by 49%. The OLO contribution to delivery sales improved from 68% a year back to 72% in this quarter. In both the markets, we opened one store each. Sri Lanka and Bangladesh now have 36 and 10 stores, respectively.

In closing, we continue to grow profitably with disciplined adherence to our five-pillar strategy. We will continue to navigate the current high inflation environment by driving productivity and efficiency across the value chain. We will continue to drive network expansion with focus on Domino’s and Popeyes, and we will continue to invest behind and build our digital team.

With that, I would like to turn to the moderator to initiate the question and answer session.

Questions and Answers:

Operator

Thank you very much — we will now begin the question and answer session. [Operator Instructions] The first question is from the line of Vivek Maheshwari from Jefferies. Please go ahead.

Vivek Maheshwari — Jefferies — Analyst

Hi. Good evening, everyone. My first question is you mentioned about a strong Y-o-Y sequential growth in this one, dining. Can you give some — are you back to the pre pandemic level in terms of dining mix given that this was the first quarter where everything was fine?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Vivek, for the question. I think dine-in remains a very important challenge for us, and we are seeing sustained sequential improvement in dine-in revenues and mix quarter-on-quarter, including quarter one and we expect dine-in recovery to sustain. I think in terms of recovery pre-COVID, I think we are very close to near 100% recovery, and we are seeing sustained month-on-month and quarter-on-quarter growth in dine-in channels, led both by order growth as well as improvement in our overall ticket size.

Vivek Maheshwari — Jefferies — Analyst

Got it. And this quarter, on the delivery side, there would also be a benefit of IPL, which was not there in the base, right?

Hari Shanker Bhartia — Founder & Co-Chairman

Sorry, Vivek?

Vivek Maheshwari — Jefferies — Analyst

[Technical Issues]

Hari Shanker Bhartia — Founder & Co-Chairman

Yes. So despite that, we have seen very strong momentum in the delivery hold-up, and we have seen strong both sequential and year-on-year growth in delivery. So while we are seeing [Indecipherable] recovery, we are also seeing very strong momentum and delivery growth holding up.

Vivek Maheshwari — Jefferies — Analyst

Okay. And you do not think there is a disproportionate benefit because of IPL being there this time around this quarter?

Hari Shanker Bhartia — Founder & Co-Chairman

So Vivek, we have not seen a significant impact of IPL on our order. Of course, there will be some impact but not a significant one is what I would say.

Vivek Maheshwari — Jefferies — Analyst

Okay. Got it. And second, if I look at your overall revenues and just do a, let’s say, a — and look at a three-year CAGR, your revenues have compounded at about 10% CAGR, your stores have also increased around the same level, and you have taken double-digit price hikes. So basically, which shows that existing stores would have seen a reasonable drop in volumes. So what is your comment on that analysis?

Hari Shanker Bhartia — Founder & Co-Chairman

Vivek we’re also — while we’re seeing overall system growth, revenue growth. We have also seen a very strong like-for-like growth, both year-on-year as well as sequentially quarter-on-quarter. And we have seen strong recovery. I think both in the same store. So while we continue to focus on driving our network and expand the network, there is a continuous focus on driving our like-for-like growth, and we have seen a very robust growth on a like-to-like basis, both order led and even BPO-led across our existing stores as well.

Vivek Maheshwari — Jefferies — Analyst

Okay. And any price hikes that you have taken in this quarter?

Hari Shanker Bhartia — Founder & Co-Chairman

Sorry, Vivek.

Vivek Maheshwari — Jefferies — Analyst

Any product price hikes during the quarter?

Hari Shanker Bhartia — Founder & Co-Chairman

Look, we had made a pricing intervention in April — in the first week of April and thereafter, we have not done any pricing intervention.

Vivek Maheshwari — Jefferies — Analyst

Got it. Got it. Got it. And second, on the loyalty bit, just a couple of things. One is that the benefit is available also on Swiggy and Zomato. So any specific reason of — is it just to get the fair share? Wouldn’t you want to divert traffic onto your own assets and therefore, just keep it exclusive to your assets? What are your thoughts on that?

Hari Shanker Bhartia — Founder & Co-Chairman

So Vivek, a fundamental reminds of launching a loyalty program is to really drive frequency increase at one level and also attract new customers on to our brands, yes? So we are making it as an omnichannel program. There is a perspective of the point of entry or a point of order of the customer. They should be able to enjoy the benefits of the loyalty program. However, the burn, as we have said, can happen only on our own assets, which will also drive more traffic on to our own assets and therefore, not only helps us build the frequency but also drives more traffic on our orders. So twin benefits of the program is what we are looking.

Vivek Maheshwari — Jefferies — Analyst

Got it. Got it. Thank you and all the best.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you for the question.

Operator

The next question is from the line of Tejash Shah from Spark Capital. Please go ahead.

Tejash Shah — Spark Capital — Analyst

Hi, thanks for the opportunity. A couple of questions. Sir, first, most of the food aggregators are now making a departure from cash going path that they had, and they are looking for profitability. Are we facing any pressure on higher take rates from them in our engagement? And I’ll just connect another news item that came just a couple of weeks back that we are perhaps rethinking our engagement terms with some of the food aggregator apps. So if you can just combine and answer.

Hari Shanker Bhartia — Founder & Co-Chairman

Okay. So Tejas, if I’ve understood your question, the first question is around higher commissions from aggregator platform? Is that the question?

Tejash Shah — Spark Capital — Analyst

Yes, yes.

Hari Shanker Bhartia — Founder & Co-Chairman

So we have — I think we have a very strong engagement with both [Indecipherable] and we have had a very strong relationship that we have built over the years. They are a very important partner and channel for us. We have not seen any pressure or increase or change in the kind of commission or commercial that we have with these platforms. And on to your second question, I think this has been a part of our converted stated strategy that we look at always promoting and improving our own assets and migrating traffic more and more onto our own assets, which gives us better control and better profitability. So that strategy continues. I don’t think there is any change in that.

Tejash Shah — Spark Capital — Analyst

And sir, perhaps a bit early, but government has actually started this program or this initiative called ONDC, where they are trying to democratize the digital platform. And we have also a very robust digital effect for ourselves. So any thoughts on joining the initiatives from ourselves?

Hari Shanker Bhartia — Founder & Co-Chairman

Mr.Tejash, thanks for that question. I think they are still early days. We have had engagements with ONDC through an area. I think that — right now, I think it will be a bit premature to comment on that, but we will continue to evaluate all opportunities. And ONDC is also something that we are actively looking at, and we would formulate a strategy around that as we go along.

Tejash Shah — Spark Capital — Analyst

Sure. And sir, just last one if I may. Sir, Hong’s Kitchen and Ekdum, we had a closure of somewhere around six [Indecipherable] in this quarter versus — [Indecipherable] versus new opening of two stores. And then this is the highest in the last many quarters. So any insights that you can say?

Hari Shanker Bhartia — Founder & Co-Chairman

So Tejash, as we have said, we are looking at driving our [Indecipherable] economics and focusing on fundamentals as far as these two brands are concerned, both Hong’s and Ekdum. Yes, we did close three stores this quarter. To just to give you a background, we had experimented with a DELCO model, wherein we have housed all these three brands together, Dunkin, Hong’s, and Ekdum with the objective of driving back of and synergies, reducing costs and providing more options to our customers. We opened a handful of these stores as a set of proof of concept. Some of these stores have not worked.

The revenue uptake on these has been lower than anticipated. And also, we realized that the DELCO format does not allow the customer to fully experience the brand and build brand [Indecipherable]. So we closed three such stores, which resulted in overall [Indecipherable] closure because each one [Indecipherable]. And these were loss-making stores without any line of sight for a turnaround in the near future. So that’s being the back end around closure of these three x three, nine stores.

Tejash Shah — Spark Capital — Analyst

Great sir. That’s very helpful. Thanks.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you.

Operator

Thank you. The next question is from the line of Abneesh Roy from Edelweiss Financial Services. Please go ahead.

Abneesh Roy — Edelweiss Financial Services — Analyst

And my first question is on the loyalty program. So is there a similar program in other markets for Domino’s and why not look for everyday low price? And third is, will this impact your margins because clearly, it’s almost one on six, almost like 15% higher value you’re giving. So any comments on this?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Abneesh, for your question. I think on the first one, yes, this is a global Domino’s program. Of course, we have tested it extensively in India with a few iterations to suit it to the Indian customer requirements. As you would know that we have tested a couple of models, and this one was a winning model.

In terms of — in terms of it impacting margins, I would say that this is a part of our discount and we would retain our overall discount levels to where we were in the past. And the basic premise of this loyalty program is to not only bring new customer on to our platform, but also drive frequency. And I think if we are able to do that, then the program more than pays for itself. So we see this as a margin accretive program and not really margin dilution.

Abneesh Roy — Edelweiss Financial Services — Analyst

So two quick follow-ups on that. One is, as you said, this is also a global program, but is it being implemented right now? So my question is on timing because after so many years, why now? And second is, you also mentioned you are also targeting new customers through this. Now Domino’s obviously has a dominant market share very well penetrated. So are you mentioning new customers or same customers, more opportunity?

Hari Shanker Bhartia — Founder & Co-Chairman

So let me answer both of your questions, Abneesh. I think on the first one, I think this is currently active even in the U.S. market. It’s a program that they’ve been running for a few years, and it’s a very successful program. Program is also running in Australia and a few other Domino’s markets. So yes, this is a global program and [Indecipherable]. As you would be aware that we have been actually working on our loyalty program for quite some time.

We have done extensive testing for the last few months, and we had tested two programs at scale. One was a cash-back-based model, which offered instant ratification and another one was a milestone-based model where the customer earns a free pizza over a period of time. Of course, the milestone base for us has been much better. And as you know, we have now rolled it out nationally. So what we have seen during the trial phase and even post the national launch, that not only it helps us drives frequency but because of the attractiveness of the program, we also see a lot of new customers who come into the category. And while we have a dominant share of the pizza market, we believe that we have only touched the tip of the iceberg.

I think in terms of the category, there’s a huge room for expansion and growth. So we would want to continue to acquire a new customer and expand the category. So I think that’s going to be an ongoing journey whilst at where we would want new customers to come on to the category, at the same time, direct frequency of existing customers.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure, that’s helpful. My second question is on SSG. So when I compare your SSG on a three-year basis versus the [Indecipherable] there is a big gap. They have grown much faster. If I see quarter-on-quarter overall revenues also, they have grown 18% while you have grown 7%. So is this largely because they would have a much higher indexation for in-store dining while you will have much higher delivery? Is that the main reason? Is there any other promotional intensity, which is helping them?

Hari Shanker Bhartia — Founder & Co-Chairman

So Abneesh, while we would not like to comment on competitors. I think the hypothesis that I have said, of course, they are much more dine-in-centric business, and therefore, they would have seen a far better recovery. Also in terms of base, I think we had recovered much faster during COVID as compared to any of our competition. So when you look at growth over base, I don’t think they are strictly compatible.

Abneesh Roy — Edelweiss Financial Services — Analyst

Sure. And one last one — quick question. So Sri Lanka extremely challenging time for every company. So you have taken the impairment. So in terms of expansion, next one year, two years, are you putting it on a standstill? And how are you managing the supply chain, inflation, or the depreciation currency, all those?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Abneesh for that question. I think we are facing severe environmental challenges in Sri Lanka. And as you rightly said, we are seeing hiring inflation. We have seen currency depreciation. We have seen import restrictions. But however, I think despite all of that, our local teams have done an outstanding job of ensuring business continues to. And we have seen a very strong operational performance in the country.

In fact, we have seen a large order-led growth despite raising inflation in the country, which gives us a lot of confidence that the long-term prospects of the Sri Lankan economy remain intact. So at this stage, we are not making any change to our plan, even in terms of store opening. We — despite the challenges in the quarter, we did open one store and have taken up our network count to now 36 stores.

Abneesh Roy — Edelweiss Financial Services — Analyst

That’s all from my side. Thanks.

Hari Shanker Bhartia — Founder & Co-Chairman

Thanks, Abneesh.

Operator

Thank you. The next question is from the line of Percy Panthaki from IIFL. Please go ahead.

Percy Panthaki — IIFL — Analyst

Hi sir, the first question is on our diversification. About a year, year-and-half, two years ago, I think the entire story was — not entire sorry, I mean one more angle to the entire Jubilant investment thesis was that basically, it’s largely pizza accusing company right now. And over a period of time, it will diversify it as Chinese, it has Indian food now with Ekdum and Popeyes, etc., Dunkin also was there at some point of time. But the fact is now, I mean, we’ve tried all these formats we’ve been in there for about two, three years.

The ramp-up is very, very slow. And it seems that there is no confidence on the having got the unit economics correct, and therefore, the scale-up has been slow. So then what happens to this entire story of having a diversified sort of food tech company. Now entire hopes are on Popeyes apart from Domino’s. The other three formats, really, I don’t know what kind of scale up you yourself are sort of factoring in over the next three years or so. So what really went wrong? I mean, we are the leaders in the entire QSR space. Why is it that we have not been able to diversify effectively enough?

Hari Shanker Bhartia — Founder & Co-Chairman

Mr. Percy thanks for the question. I think we remain committed to build a multi-country, multiplant food tech partner. And I don’t think there is any change in our intent or strategy as of now. So as we have said in the past, we continue to remain focused on building and creating a brand portfolio, which we are able to scale profitably. As you would know, and let me talk about each one of these brands on Hong’s, we have now 14 stores across India and which by no means is a small network.

And we have been focusing on driving awareness, improving the overall mix in terms of our store design, menu pricing and I think we have done a fairly good job over the last two, two and half years of which almost two years went into COVID. Having said that, I think we are fairly confident that we’ll be able to fine-tune the model in the next few quarters before we look to scale up.

As we scaling up for our size and our capability, I think, is easier. I think one thing which we have remained consistent over the years is our ability to drive scale along with profitability because I think it’s easy to drive scale, but it’s difficult to do it in a manner which is profitable and therefore, create value for the shareholders. Coming to Ekdum, as I think again, I think there is a lot of focus on working on fundamentals and driving liquidity front.

On Dunkin, we are looking at reversing through a coffee-first strategy. I think we’ve made a lot of progress in that strategy. We have opened a few stores now, which are with coffee cues. We have completely retake the portfolio in terms of giving the coffee cues. We have launched a range of new coffees into the portfolio. We’ve also changed our food offering, which is now more aiming to ready-to-eat and ready-to-serve in line with the coffee philosophy.

I think Dunkin’ is well on its path to becoming a coffee-first brand. And once we are confident that the model is working, we will, of course, look to scale up. Popeyes,I think again presents a huge opportunity, and we’ve talked about it in the past. Fried chicken is a very large category in India, almost a huge white space given that there’s only one entrenched player there. We have started well in Bengaluru. We have added two more stores this quarter, taking our total store network to six. And we have got very good customer feedback, both in terms of the product space, experience and we are getting very healthy levels of repeat. And as I said, we remain committed to opening 20 to 30 stores this quarter.

So I think it’s also about focus. So we’ll continue to focus on building and growing the store network for Domino’s and Popeyes this year, while we focus on building [Indecipherable] for the other brands before we have to really scale up. So to summarize, I think the story remains intact, and we are not giving up on any of these brands, and we’ll continue to focus on build.

Percy Panthaki — IIFL — Analyst

Right, sir. My second question is on this loyalty program since it is there in some shape or form in other countries and using the sort of experience as a starting point, what kind of sort of delta to the LFL growth, do you think the royalty scheme can give. So if I look at your LFL growth for this quarter, on a three-year CAGR basis, it is somewhere in the region of about 3%. I think any QSR company, even a mature QSR company in stable state, should be having at least a 6% to 7% LFL growth, otherwise, store economics deteriorate over a period of time. So to get from that 3% to about 6% or 7%, do you think that this loyalty scheme can sort of give that extra 300 basis points delta?

Hari Shanker Bhartia — Founder & Co-Chairman

So Percy, while it would be difficult to put a number. I think our endeavor as in to drive all through a number of interventions, loyalty being one of them. So we believe that it will drive customer stickiness, improve overall frequency and help us generate more life cycle value of the customer. But that is not the only intervention that we are doing in terms of driving our overall ASL.

I think there is a constant focus on improving product service and our service levels, and that’s why there is a lot of focus on [Indecipherable], a program that we have talked about in the past. And we have said that now more than 70% of our pizzas get delivered in less than 20 minutes. We are also focusing on driving product innovation. We did chicken overload a couple of quarters back. We did Paratha Pizza in the last quarter where we have seen a significantly higher level basis. There is also a lot of focus on driving and improving our customer experience on our digital assets.

There’s been a lot of investment that we are making behind that to make the customer experience more intuitive and frictionless — and we are also taking a lot of dine-in-specific interventions as we look at leveraging on the dine-in growth. So I think all of this put together would drive our LFL drop. And of course, loyalty [Indecipherable] could play, an important growth in that entire mix.

Percy Panthaki — IIFL — Analyst

And in the Indian [Indecipherable] with so many value-seeking customers, people do things like sharing Netflix passwords with their friends, etc. So have you that kind of behavior in your loyalty scheme that there might be one person who is sort of having the app and ordering for two or three other friends, and therefore, you don’t get that benefit of the loyalty scheme, which you would have envisaged?

Hari Shanker Bhartia — Founder & Co-Chairman

So, Percy in any scheme, there would be abusive, but we believe that the overall benefit that you will get from genuine users who would genuinely drive our frequency will far outweigh some of these abusers.

Percy Panthaki — IIFL — Analyst

Okay, sir. That’s all [Indecipherable].

Operator

Thank you. The next question is from the line of Chirag from CLSA. Please go ahead.

Chirag — CLSA — Analyst

Yes, thanks for taking my question. On the multi-brand, multi-country growth approach, can you talk a little bit around how would you incrementally think of allocating capital with a two to three-year view? And how will the capex split between Domino’s, other brands, international geographies will look like? And as an organization, do we think that we can generate similar or better ROCEs on incremental investments versus what we are generating today?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks for that question, Chirag. I think we have very clearly [Indecipherable] created strategy for growth. Our first and foremost pillar for growth is to build [Indecipherable]. Then we are talking about creating a portfolio of brands, grow our international footprint and continue to invest in building digital and data capabilities.

So I think our investment in capital allocation follows the same philosophy and principles, which are in line with our strategic pillars. We have a very strong balance sheet. We’ve adequate cash and we have zero debt on our balance sheet. So we believe that by being very calibrated and by being very disciplined, we would continue to generate very high returns for our shareholders and stakeholders.

Chirag — CLSA — Analyst

Sure, sure. Just continuing on that point. If you look at Bangladesh today, I mean, the store — the number of stores that we have, even for the size of Bangladesh market, it looks like we are going for very calibrated expansion. So is there a scope to actually increase the expansion and the network base in Bangladesh because after a few years of operation, it still remains very low?

Hari Shanker Bhartia — Founder & Co-Chairman

So Chirag, I think your observation is very relevant. I think that is why one of the steps that we took in the last quarter was to increase our stake in our Bangladesh subsidiary to 100%, and that was done precisely with the intent of accelerating our store or expansion in Bangladesh. We believe now that we are beyond building the capability to scale up much faster in the future. Sorry.

Also I think because of COVID in the last two years, there was some dent in a level at which we would have wanted to grow, and there were some operational challenges. But as I said, now that we have 100% stake, and we’re also enhancing the level of management quality and building capabilities in Bangladesh, which will allow us to grow at a much faster basis.

Chirag — CLSA — Analyst

Sure, sure. And just coming back on the loyalty program part, clearly, very simple thought-out strategy from a perspective of deriving long-term gains. But I’m not sure about your comment on the impact of margins in the near term, right? Because while the view is that we’ll be replacing other discounts, when you see there will be no impact on margins. Are you talking about percentage margins or the fact that higher frequency would drive more profitability? And also when we speak about replacing other discounts, are we talking about and reducing or scaling down the EDV program because that has been a key driver of our consumer recruitment in the past?

Hari Shanker Bhartia — Founder & Co-Chairman

Chirag, I think if I were to take a step back, I think we have also become a lot more focused in our discount strategy. Our ANI team has done an excellent job of creating a discount affinity model, which allows us to bucket consumer under various cohorts, which are high discount seeking versus low discount seeking. So I think over a period of time, anyways, we have been able to drive a lot of return efficiency from our overall discounts.

We believe that even after launching this loyalty with the level of discounting and earns so burn that we are anticipating, we’ll be able to maintain our current discount levels without impacting our near-term or long-term operating margins. And of course, in the longer term, if the loyalty program does turn out to be as successful as we are wanting it to be, then we will see significantly improved frequency, and it should be margin accretive.

Chirag — CLSA — Analyst

Understood. Just one last question, if I may, on Hong’s kitchen. You mentioned that a lot of the stores closed down where on the DELCO model. But outside of the DELCO model, do you think that the unit economics now on Hong’s Kitchen is falling in place?

Hari Shanker Bhartia — Founder & Co-Chairman

So the short answer to that question Chirag is yes. I think the progress that we have made in some of the other stores is very encouraging. A few of our stores have already turned profitable at unit sold level. We’ve also opened a new store in [Indecipherable] if you get a chance to you must visit, which is a full-scale model, which is a new store design and I think it’s doing exceedingly well as the customers are able to experience the brand in totality.

Chirag — CLSA — Analyst

Sure. Thanks and all the best.

Operator

Thank you. The next question is from the line of Jaykumar Doshi from Kotak. Please go ahead.

Jaykumar Doshi — Kotak — Analyst

Yes. Hi. Thanks for the opportunity. Now when I look back at the past 15 years for Domino’s, FY ’08 to FY ‘2013 was the phase where revenue growth was tracking significantly ahead of store growth. And FY ’14 to ’17 was a soft patch where revenue growth was lagging store growth. And then again, we saw revenue growth ahead of store growth.

But when I look at this quarter and compare it versus 1Q FY ’20 revenue growth and store growth are broadly comparable even as price increases plus the introduction of delivery fees, overall, the combined price increase is significant. So how should we think about the next three years? You are adding 250 stores this year and you may be adding a similar number over the next one or two years. Is there any chance that revenue growth may fall behind store growth?

Hari Shanker Bhartia — Founder & Co-Chairman

So Jay, I think as we’ve always stated that while we continue to drive store growth, we remain indefinitely focused on also driving the same-store growth because I think that’s the main state of our overall effort in the organization. And as I was just mentioning, I think there are a number of steps that we continue to take to drive our LFL growth. We are improving our service levels, our operating KPIs, it introducing consumer-relevant innovations like Paratha Pizza or dine-in-specific interventions that we are making and given the launch of the loyalty program, and along with that, of course, continuous improvement on our digital platform.

So I think the combination of all of this will help us deliver more balanced growth, where it comes through a combination of driving the same-store growth as well as full net growth. So that’s the way we have constructed our growth hypothesis for going forward. And we hope to be able to deliver that based on all the inputs that are going.

Jaykumar Doshi — Kotak — Analyst

Understood. Just a follow-up question there. Now when I think about the innovations, new product launches over the past few years, it’s largely been within the pizza category. So do such new product launches actually over time, help in terms of incremental value or it kind of replaces some of the older products? And if that is the case, are you exploring or considering expanding the product portfolio outside of Pizzas to be able to drive higher revenue throughput for some of the stores that may have saturated in terms of revenue throughput?

Hari Shanker Bhartia — Founder & Co-Chairman

So Jay, I think innovation helps us do two things primarily. I think A, it helps us give a wider range and effort, improved consumption for existing customers. And secondly, it also helps us distributing customers into the category as it pays more exciting. What we have noticed is that more than cannibalization, it leads to incremental growth. And when we evaluate innovations internally, we also do it from a lens of incrementality.

So some of the innovations, as you said, have been brought in the pizza — core pizza category, whether it is Cheesilicious or Chicken Overload or the Paratha Pizza, — but also we have been innovating in the adjacent space. For example, we had recently launched the Choco Lava velvet versus red velvet version. And there are a number of sites where we keep innovating. Even [Indecipherable], I think we introduced a range of –, which was a — from chicken to paneer tikka.

So I think our innovation program looks at the 360-degree of the entire pallet in terms of where there is a gap and where we should be innovating. We are also looking at a number of regional mixes. And therefore there is a continuous funnel, which is getting made, and we have line of sight and visibility to at least the next three to four quarters of the innovation that we will be going on.

Jaykumar Doshi — Kotak — Analyst

Understood. Any comments you can give on when do you intend to go ahead with national roll out of Hong’s Kitchen, we were earlier expecting it to happen sometime during the course of this financial year. Is it still on track? Or…

Hari Shanker Bhartia — Founder & Co-Chairman

As we mentioned last quarter also, Jay and I [Indecipherable] that we said we will take a pause for the next two to three quarters. So I think [Indecipherable], we remain fairly confident that we should be able to expand beyond NCR as we get into the next fiscal.

Jaykumar Doshi — Kotak — Analyst

Understood. Thank you so much.

Operator

Thank you. The next question is from the line of Vishal Gutka from PhillipCapital. Please go ahead.

Vishal Gutka — PhillipCapital — Analyst

Yes. Just one question on food, services, and business. So our tech suggested that we have started supplying buns and cookies through the HoReCa channel. Just wanted to know why you started this line of business? And any comments if you can give on the margin prospects and long-term aspiration for this business?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Vishal, for your question. I think your question is on the food and service business. So I think this is, again, more a pilot stage that we are looking at. We have a large capability that we have built the — national — and we have entered the packing. So the idea is to how we can leverage that trend that we have built in our country and the expertise that we have in manufacturing and food to create a business which could be scalable and profitable. But I think as of now, it’s more at a pilot stage, and we will see how it plays out as such.

Vishal Gutka — PhillipCapital — Analyst

Okay. And sir, on Dunkin Donut front, I just saw some of the fix in the Timor building, Noida, where I think you opened a very large format stores where interiors seems to be quite good. So are you trying to go online for war with Starbucks because in the initial comment, you alluded that coffee is going to be the focus. So in that case, will it require a change of name as well what do you call it — other than the name of Dunkin Donuts for the brand?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Vishal. But I think we’re not calling it Dunkin Donuts, which are calling Dunkin — and this is in line with the overall global strategy of Dunkin’s that is actually a [Indecipherable] brand, and that’s what we are trying to build now. As we mentioned earlier that we have — and we have done a number of things to make it a [Indecipherable] brand in terms of changing the beams — bringing in the new store design, bringing in new coffee machines, and making the food compatible with coffee. So as I said earlier, I think we are very excited with this new service that we are doing for Dunkin. And we really hope that this will really work and redefine Dunkin for us and for India.

Vishal Gutka — PhillipCapital — Analyst

Okay. And sir, last question on the LTL like-for-like growth. So any comment on what do you call Metro Tier one figure [Indecipherable] already broad-based is coming from all us.

Hari Shanker Bhartia — Founder & Co-Chairman

So, we have seen growth across all town Tier, Vishal. Of course, we have seen slightly higher growth in Tier two, Tier three and Tier four towns versus Tier one. But by and last, the growth has been fairly broad-based.

Vishal Gutka — PhillipCapital — Analyst

Okay, sir. Thank you so much.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you so much.

Operator

Thank you. The next question is from the line of Latika Chopra from JP Morgan. Please go ahead.

Latika Chopra — JP Morgan — Analyst

Yes. Hi. Thanks for the opportunity. Apologies, I joined a little late, not sure if it’s been addressed. My question was trying to get a little more color on the delivery growth. What kind of delivery growth have you seen? Is it very volume — have you seen volume growth within your delivery business sequentially? That was my first question.

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Latika, and thanks for the question. So as we had explained earlier in the call, I think that we are seeing a very strong sequential dining recovery. But the good news is that we’ve also seen a very robust delivery growth and the delivery growth is largely orderly, and we have seen the delivery growing both sequentially and year-on-year.

Latika Chopra — JP Morgan — Analyst

But thanks for that, but your order growth could be different from volume growth, right? Because what I mean by volume growth is your number of units that you’re selling, your number of units per order could be affected. So in that context, are you seeing the growth even in number of units? Because given the kind of price increases what we have seen and the shop recovery dying in, I’m just trying to understand volume numbers for delivery of holding out or they’re growing? Or what’s really happening there?

Hari Shanker Bhartia — Founder & Co-Chairman

Yes. So Latika right, I think we did make a pricing intervention, one in December earlier and then earlier this year in April. Our pricing has — overall, I think landed fairly well. What is asking is that we have seen order-wise growth, as I said, in sequential. Given the highly inflationary environment, we have seen consumers make some choices by reducing quantity per order marginally, but at an overall level, we have seen both order growth and also growth in our ticket sizes sequentially.

Latika Chopra — JP Morgan — Analyst

All right. And my second question was in the previous call, there was lot of confidence shared on the fact that margins for the company will be maintained around 25% levels despite the stepped up to expansion and investments [Indecipherable], Is this something you [Technical Issues] outlook differently.

Hari Shanker Bhartia — Founder & Co-Chairman

So Latika, I think our margin outlook remains unchanged. As we have mentioned in the past, we continue to maintain that we will deliver a healthy level of margins. Of course, this quarter, as you know, was at a very heightened level of inflation. And despite that, we have been able to deliver a very healthy margin of 24.6% [Indecipherable] there.

And this was delivered on the back of the price increase that we took, but more importantly, the productivity that we drove throughout the entire value chain and some of the operating leverage. I think some of these enablers would continue to file, and we are confident that we should be able to maintain or deliver current levels of profitability as we go ahead.

Latika Chopra — JP Morgan — Analyst

All right. Thank you so much.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you, Latika.

Operator

Thank you. The next question is from the line of Sheila Rathi from Morgan Stanley. Please go ahead.

Sheila Rathi — Morgan Stanley — Analyst

Good evening, everyone. Thankyou for taking my question. My first question was with respect to the dine-in recovery. I would like to understand how is the dine-in recovery as compared to the third quarter of F ’20. So have we recovered on an absolute basis, which is comparable to that particular quarter? Or how far away we are from that level?

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Sheela, for your question. And if I understood it right, you’re trying to compare it to a pre-COVID normal quarter?

Sheila Rathi — Morgan Stanley — Analyst

Yes.

Hari Shanker Bhartia — Founder & Co-Chairman

Yes. So as I said earlier, I think we’ve seen a very strong recovery in [Indecipherable]. And I think we are very close to the pre-COVID level now. I wouldn’t say that we have fully recovered, but I think we’re very, very close now. And we are seeing sequential and month-on-month improvement in dine-in and dine-in has come back very strongly. As you have seen, the overall fears of COVID subsiding. So to again — I can summarize, we have seen very strong recovery in dine-in, and we are now very close to the pre-COVID levels.

Sheila Rathi — Morgan Stanley — Analyst

All right. My second question is with respect to the recent announcement which came through on the 40% acquisition of [Indecipherable]. Just wanted to understand how does that fit into your current ecosystem? I understand they provide some last-mile delivery operations, but I just wanted to get some brand [Indecipherable] details.

Hari Shanker Bhartia — Founder & Co-Chairman

So thanks, Sheela. So I think our investment in [Indecipherable] reflects our intent of making strategic investments in promising start ups, something that we have been doing since last year. [Indecipherable] offers a SaaS-based platform for management of last mile delivery options. I think it provides end-to-end delivery management solutions to monitor and manage vehicles as well as fleet staff and real-time. And we see a number of areas of driving collaboration and synergies with [Indecipherable]. And I think this would be a long-term strategic tie-up and an investment for us, and it should play out well in the long term.

Sheila Rathi — Morgan Stanley — Analyst

Just to understand this clearly, you all doing this, right? With respect to monitoring the fleet on an ongoing basis on a live basis. So this is an additional element to what you are already doing.

Hari Shanker Bhartia — Founder & Co-Chairman

Sorry, Sheela, I didn’t get that question. Sorry, if you can repeat the –…

Sheila Rathi — Morgan Stanley — Analyst

So what I understand is there is live monitoring of the fleet which you already had? And — also be offering the same pace? Or is this something different from what you are already doing?

Hari Shanker Bhartia — Founder & Co-Chairman

So Sheela, the company offers two vital solutions. One is, of course, delivery fleet management and the other is live vehicle tracking. So of course, we were currently also leveraging on third-party platform as far as driver tracking is concerned. This is not something which we had built in now, and that’s why we see a very high level of synergies with [Indecipherable] because it also helps us accelerate our tech road map as far as driver tracking and eTech is concerned.

Sheila Rathi — Morgan Stanley — Analyst

Understood. Thank you.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you, Sheela.

Operator

Thank you. The next question is from the line of Avi Mehta from Macquarie. Please go ahead.

Avi Mehta — Macquarie — Analyst

Hi, sir. Just two questions. First, I just want to clarify that six closures on Hong’s and Ekdum are nothing about three stores counted doubly. Is that understanding correct? I want to just clarify that? Or is that [Technical Issues]

Hari Shanker Bhartia — Founder & Co-Chairman

That understanding is correct because these were store formats where we had housed all these three brands together, which is Dunkin, Hong’s and Ekdum. And therefore, we have closed three such stores, which needs to [Technical Issues] overall closure in terms of stores because one for each [Indecipherable].

Avi Mehta — Macquarie — Analyst

Okay. Okay. Perfect. And sir, the second clarification I just wanted to have was on the margin commentary. Did you maintain the guidance on EBITDA margin, which is the FY ’20 margins will be similar to FY ’22 — you said last time. That is what you’re maintaining, right, sir?

Hari Shanker Bhartia — Founder & Co-Chairman

Sorry, Avi, is your question that we would maintain margins similar to last year level?

Avi Mehta — Macquarie — Analyst

Yes. That was the guidance like last quarter, is going to reconfirm because you said to the earlier participants that you would maintain that guidance…

Hari Shanker Bhartia — Founder & Co-Chairman

We just continue to maintain it at a healthy level. Of course, it’s very difficult to give out a particular number. But I think we are in the broad ball park of 25% now, and you would want to — want to remain.

Avi Mehta — Macquarie — Analyst

Okay. Okay. So it’s maintaining at a healthy level. Okay. Thank you.

Operator

Thank you. Ladies and gentlemen, we will take the last question from the line of Devanshu Bansal from Emkay Global. Please gp ahead.

Devanshu Bansal — Emkay Global — Analyst

Hi. Thanks for the opportunity. Sir, question was to understand the same-store growth going ahead with Domino’s being a clear leader in terms of penetration, it becomes easy for peers to open store near Domino’s stores. So do you see this impacting your SAC as expansion plans as well as filling of portfolio gaps by peers sort of remain aggressive?

Hari Shanker Bhartia — Founder & Co-Chairman

Mr. Devanshu, I think — thanks for the question, first of all. I think we have a very clear road map in terms of network, that being there are vectors to that. One, of course, is entering new cities. We have — this quarter also we have entered 12 new cities, and we are now positioned 349. And we are close to 117 plus cities where we are the only [Technical Issues].

That will remain a very important vector of growth for us where we’ll continue to look at entering new cities and new towns. Second letter of growth also entering white spaces in existing towns. So 40% of the stores that we have opened in the recent past has been in his spaces in an existing towns, as we have seen the town boundaries increasing and also there are areas which we are not serving earlier.

And third, of course, is our fortification strategy, when we continue to split store and as we’ve explained in the past, we do really well and pay back end. I think a combination of all these three would be driving our network expansion strategy. And of course, we are building a lot of science and data in terms of identifying where we should be opening and all — and if our competition hear us, it is always welcome. We are always ready to meet them –.

Devanshu Bansal — Emkay Global — Analyst

Sure. And secondly, I wanted to understand, is pricing going to be a key driver for SSG going ahead? Or you remain confident of volume growth driving the SSG given the introduction of loyalty program as well as new innovations that we have?

Hari Shanker Bhartia — Founder & Co-Chairman

Mr. Devanshu, I think inflation, while it remains high, we have seen some operational stabilization in quarter one. So if — as we stand today, we currently do not see a need for another round of prices. We are well positioned, and we should be able to manage with the current level of pricing. Of course, we’ll continue to look at pockets of opportunities, value expansion without compromising on our value for money for production.

Devanshu Bansal — Emkay Global — Analyst

Sure. And lastly, in Sri Lanka, we saw strong growth despite challenging macros. So I wanted to understand more on the reason behind the recognition of this impairment charge as our long-term outlook for this economy also remains [Indecipherable].

Hari Shanker Bhartia — Founder & Co-Chairman

So Devanshu, the impairment charge is more accounting-led and this is an impairment of some historical investments that we have done, largely on account of depreciating currency and cheap increase in the interest rates in the economy. So this is a noncash chance. But as we said, we remain very positive on the overall outlook of the economy. And our plans in Sri Lanka has not reached phase because of what we have seen because we have a very strong operation [Indecipherable].

Devanshu Bansal — Emkay Global — Analyst

Sure, sir. That’s helpful. Thank you.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Hari Shanker Bhartia — Founder & Co-Chairman

Thank you, everyone, for joining us today evening. Wish you all the very best. Thanks a lot.

Operator

[Operator Closing Remarks]

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